Raising the rent on existing tenants can be as difficult as asking your boss for a raise. But there’s a difference.
You may need to justify your reasoning to your boss, but you don’t need to do so with your tenants, even if you have valid reasons, such as:
- Increased insurance premiums
- Increased taxes
- Maintenance fees went up
- Rising homeowner association dues
- Cost-of-living increases
You don’t need to explain your finances to your tenants. You do need to let them know in writing, with a rent increase letter, they can expect a new rent amount.
It’s understandable that you might feel hesitant the first time you want to give your tenants a rent increase. You might be worried that they’ll be so offended or angry that they’ll leave. Or perhaps, you fear a confrontation and subsequent retaliatory property damage.
If you follow these four tips, you can eliminate some of the angst from raising the rent, and you’ll begin to think of the process as just another normal part of being a landlord.
1. Automatically include a small rent increase at each lease renewal period
Most tenants expect a slight rent increase at renewal time of, say, $25 to $50 or so. But if you spring a $200 or more increase on them after not having increased the rent for five years, you’ll likely get some negative feedback. A good rule of thumb is to raise the rent about three to five percent a year.
If you have an excellent tenant whom you are trying to convince to renew, you might want to waive the rent increase if they will sign for another year. An excellent tenant is worth far more than any rent increase. And after all, you can always make up the difference by raising the rent when they move out.
2. Send a rent increase letter 60 days before lease end
Sending a rent increase letter this far in advance lets you know what your tenant’s intentions are. If they don’t plan to renew the lease, you have time to start marketing and showing the place without having a vacancy period.
In the rent increase letter, which you can send through regular mail or email, thank your tenant for being such a great tenant. Compliment them on their good traits, such as paying the rent on time or taking care of the property.
Then, get right to it and say that you need to raise the rent. You can add an explanation if you like, such as your needing to keep up with your expenses. Point out that you are raising the rent as little as possible, and that you hope they will stay with you.
You’ll need to state what the new rent will be and the date it becomes effective, which would be the day after the lease ends.
If you have a fixed-term lease, you could include or attach a new lease with your letter or email. Ask that your tenant read the new lease, sign it, and send it back to you. Explain that you’ve highlighted or underlined any changes, such as the rent increase, and that everything else remains the same.
If you have a month-to-month rental agreement, the tenant won’t need to sign a renewal since it automatically renews every month.
Sample rent increase letter
Re: Rent increase notice
Dear [Tenant’s name],
As you are aware, your lease at the above property will expire on [date of lease expiration].
Please be advised that effective [date of increase rent], the monthly rent for the premises you now occupy shall be increased to $____ per month. This is a change from your present rent of $____ per month.
Should you wish to sign a new agreement or continue your tenancy month-to-month, this new amount would be required. All other terms of the Lease Agreement will remain in full force and effect. If you do not wish to renew your lease, please provide your notice as soon as possible or no later than the legally required date of [date of last day notice required].
If you have any questions, please do not hesitate to contact me at [phone number].
3. Know the law
Although the property is yours, you can’t raise the rent however much you like if your place is rent controlled, or if there’s a statute that limits the increase amount. And you can’t raise the rent whenever you like if you have a fixed-term lease.
If your tenant signed a lease, you can’t raise the rent until the lease period is up. The only exception is if the lease states that you can raise the rent during the lease period—but even so, it negates the idea of a “fixed” lease and is often not allowable in court.
If your tenant is on a month-to-month tenancy, you can raise the rent after giving the proper notice for your state, which is usually 30 days, but this time period varies by state. Your notice needs to be in writing (letter or email), and unfortunately, any verbal agreement with your tenant usually won’t stand up in court if argued.
Know that you can’t raise the rent in a discriminatory manner because you don’t like a person’s race, religion, or sexual orientation. And you can’t raise the rent because you made some needed repairs to the property, or you want to punish a tenant for complaining to the city about a code violation.
In many states, if a tenant files an official complaint to a government authority, has been involved in a tenant’s organization, or exercises a legal right, then you are restricted from raising the rent for a set period of time. Many courts will assume “retaliation” by the landlord if negative action is taken on the tenant anywhere from 60 to 180 days after any of those actions. Again, check your state laws regarding the rules on retaliation.
4. Know the market rates
Your costs don’t dictate what you should charge for rent; the market does. You can’t expect to keep a tenant if you’re charging significantly more than similar rental units around you.
Actual rent comps
The best way to determine market rate is by looking at actual rent prices of comparable rentals in your area. Using actual rent data is better than looking at listing price data, because one is an actual amount and the other is a projected amount.
To set your rent price with confidence, get a Cozy Rent Estimate, which gives you a recommended rent amount along with details about comparable units and area market trends. Bonus: collect your rent online
You can save a little money—and a lot of time—by collecting rent online using Cozy. It’s easier for you and your tenants—and it’s free for landlords. While you can sign up and start collecting rent using Cozy at any time (even if you’re in the middle of a lease), if you’re updating your lease anyway, it’s a great opportunity to make Cozy your preferred payment method.
Be sure to let your tenants know they can improve their credit histories just by paying their rent through Cozy.
As long as your rental rates are in line with other similar rentals in the area, you follow the rent increase laws of your jurisdiction, and you tactfully and professionally give your tenants a rent increase notice, you’ll wonder why you ever stressed about this process.